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Financial Services Law Insights and Observations


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  • CFPB updates HMDA Small Entity Compliance Guide

    Agency Rule-Making & Guidance

    On January 24, the CFPB published the HMDA Small Entity Compliance Guide with updates to integrate the HMDA final rule issued in October. According to the guide, HMDA rule changes include (i) the types of institutions and transactions that are subject to Regulation C; (ii) the information that institutions must collect and report; and (iii) the process for reporting the information. As previously covered in InfoBytes, some institutions are exempt from the information collection and reporting requirements. Additionally, the guide notes that effective January 1, 2022, the rule “reduces the loan-volume threshold for covered open-end lines of credit to 100 covered open-end lines of credit in each of the two preceding calendar years” from the temporary threshold of 500 lines, previously covered here. It also clarifies and expands the categories of excluded transactions.

    Agency Rule-Making & Guidance HMDA EGRRCPA Supervision Mortgages CFPB

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  • Parties file amicus briefs in CFPB constitutionality challenge


    On January 22, a coalition of attorneys general from 23 states and the District of Columbia filed an amicus brief in Seila Law LLC v. CFPB arguing that the U.S. Supreme Court should preserve the CFPB and other consumer protections provide under Title X of Dodd-Frank. Last October the Court granted cert in Seila to answer the question of whether an independent agency led by a single director violates the Constitution’s separation of powers under Article II. The Court also directed the parties to brief and argue whether 12 U.S.C. §5491(c)(3), which sets up the CFPB’s single director structure and imposes removal for cause, is severable from the rest of the Dodd-Frank Act, should it be found to be unconstitutional. (Previous InfoBytes coverage of the parties’ submissions available here.) In their amicus brief, the AGs argue that the Bureau’s structure is constitutional, and that—even if the for-cause removal provision is deemed invalid—the Bureau and the rest of Title X should survive. The brief highlights joint enforcement actions and information sharing between the states and the Bureau, and emphasizes the importance of Title X provisions that are unrelated to the Bureau but provide states “powerful new tools” for combating fraud and abuse. “These provisions are entirely independent of the provisions governing the CFPB, and they serve distinct policy goals that Congress would not have wanted to abandon even if the CFPB itself were no longer operative,” the AGs write. While the AGs support the U.S. Court of Appeals for the Ninth Circuit’s decision that the Bureau’s single-director structure is constitutional (previously covered by InfoBytes here), they stress that should the leadership structure be declared unconstitutional, the specific clause should be severed from the rest of Dodd-Frank. According to the AGs, “[s]everability is supported not only by [Dodd-Frank’s] express severability clause, but also by Congress’s strongly expressed intent to create a more robust consumer-protection regime to avert another financial crisis.” Moreover, the AGs assert that the states would suffer concrete harm if the Court decides to eliminate the Bureau or rule that the entirety of Title X should be invalidated.

    The same day the U.S. House of Representatives filed an amicus brief arguing that the Court should resolve Seila without deciding the constitutionality of the Bureau director’s removal protection because the removal protection has no bearing on the issue in the case, which is an action addressing whether the Bureau’s civil investigative demand should be enforced. However, should the Court take up the constitutionality question, the brief asserts it should uphold the removal protection. “In establishing the CFPB, Congress built upon its long history of creating, and this Court’s long history of upholding, independent agencies.” The brief states that the “CFPB performs the same functions independent regulators have long performed, and it does so under the same for-cause standard this Court first blessed 85 years ago. The CFPB’s single-director structure does not transform that traditional standard into an infringement on the President’s authority.”

    Earlier on January 21, Seila Law filed an unopposed motion for divided argument and enlargement of time for oral argument, which states that all parties “agree that divided argument is warranted among petitioner, the government, and the court-appointed amicus.” The brief suggests a total of 70 minutes, with 20 minutes for the petitioner, 20 minutes for the government, and 30 minutes for the court-appointed amicus, and notes that any time allotted to the House of Representative should come from the court-appointed amicus’ time. (The House filed a separate brief asking to be allotted oral argument time.)

    A full list of amicus briefs is available here. Oral arguments are set for March 3.

    Courts U.S. Supreme Court CFPB Single-Director Structure Seila Law Dodd-Frank U.S. House State Attorney General

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  • CFPB formalizes “Compliance Aids” policy

    Agency Rule-Making & Guidance

    On January 27, the CFPB published a policy statement announcing a new designation for certain guidance material. The non-binding “Compliance Aids” are intended to assist financial institutions when complying with laws and regulations, but are not rules, and are therefore exempt from the Administrative Procedures Act’s notice and comment rulemaking requirements. According to the Bureau, while the Compliance Aids may include practical suggestions for entities, the Bureau notes that “[w]here there are multiple methods of compliance that are permitted by the applicable rules and statutes, an entity can make its own business decision regarding which method to use, and this may include a method that is not specifically addressed in a Compliance Aid. In sum, regulated entities are not required to comply with the Compliance Aids themselves. Regulated entities are only required to comply with the underlying rules and statutes.” The policy statement is effective February 1.

    Agency Rule-Making & Guidance CFPB Compliance Compliance Aids

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  • CFPB issues statement intended to clarify “abusive” practices

    Agency Rule-Making & Guidance

    On January 24, the CFPB issued a policy statement applicable immediately to provide a “common-sense framework” for how the Bureau plans to apply the “abusiveness” standard in supervision and enforcement matters as authorized under Dodd-Frank. Under the new policy statement, the Bureau will only cite or challenge conduct as abusive if the agency “concludes that the harms to consumers from the conduct outweigh its benefits to consumers.” The Bureau will also generally avoid challenging conduct as abusive if it relies on all, or nearly all, of the same facts alleged to be unfair or deceptive. Should the Bureau include abusiveness allegations, the policy statement says it will “plead such claims in a manner designed to clearly demonstrate the nexus between the cited facts and the Bureau’s legal analysis of the claim.” With respect to supervision, the Bureau intends to clarify the specific factual basis for determining a violation of the abusiveness standard. In addition, “the Bureau generally does not intend to seek certain types of monetary relief for abusiveness violations” in instances where the Bureau determines that the person made “a good-faith effort to comply with the abusiveness standard.” However, the Bureau cautions that it will still pursue restitution for consumers in such instances, regardless of whether a person acted in good faith. The Bureau further emphasized that the issuance of the policy statement does not prevent the possibility of future rulemaking to further define the abusiveness standard.

    As previously covered by InfoBytes, last June the Bureau held a symposium to examine how the “abusive” standard has been used in practice in the field. Academics and practitioners discussed whether consumer harm was required for a practice to be considered abusive or whether there was even a need to clarify the abusive standard, as it is already statutorily defined. Most panelists agreed that a guidance document or policy statement would be an important first step for the Bureau in providing clarity to the industry, noting that the industry has struggled with examples of how abusiveness is different from unfairness or deception and that the Bureau has been “inconsistent at times” in the application of the abusive standard. The Bureau notes that the symposium, along with stakeholder feedback, played an important part of the process leading to the issuance of the policy statement.

    Agency Rule-Making & Guidance CFPB UDAAP Abusive

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  • 7th Circuit says “time sensitive document” on envelope violates FDCPA


    On January 21, the U.S. Court of Appeals for the Seventh Circuit partially reversed a district court’s dismissal of an action concerning a debt collector’s use of language or symbols other than the collector’s address on an envelope sent to a consumer. According to the opinion, the consumer received a debt collection letter enclosed in an envelope stamped with the words “TIME SENSITIVE DOCUMENT” in bold font. The consumer filed a complaint against the defendant asserting various claims under the FDCPA, including that inclusion of “TIME SENSITIVE DOCUMENT” on the envelope was a violation of section 1692f(8). The defendant had argued that an exception should be carved out for “benign” language in this instance, and the district court agreed.

    As previously covered by InfoBytes, the 7th Circuit invited the CFPB to file an amicus brief on whether there is a benign language exception to section 1692f(8)’s prohibition, and, if so, whether the phrase “TIME SENSITIVE DOCUMENT” falls within that exception. The Bureau asserted that there is no benign language exception, and stressed that while section 1692f(8) recognizes that debt collectors may be permitted to include language and symbols on an envelope that facilitate the mailing of an envelope, section 1692f(8), by its own terms, does not allow for benign language. Additionally, the Bureau commented that section 1692f’s prefatory text does not “provide a basis for reading a ‘benign language’ exception into section 1692f(8),” nor does the prefatory text suggest that the prohibition applies only in instances where it may be “‘unfair or unconscionable’” in a general sense. 

    The 7th Circuit concluded that section 1692f(8) is clear. Because the language at issue does not fall within the list of exceptions—it is not the debt collector’s name or its address—the inclusion of the phrase “TIME SENSITIVE DOCUMENT” is a violation of  section 1692f(8), and the district court erred in dismissing this claim. However, the appellate court agreed with the district court’s dismissal of the consumer’s section 1692e claims that the language used on the envelope and in the body of the letter were false and deceptive.

    Courts Appellate Seventh Circuit FDCPA CFPB Debt Collection

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  • Kraninger outlines plan to extend GSE patch, previews QM Rule

    Agency Rule-Making & Guidance

    According to sources, on January 17, CFPB Director Kathy Kraninger sent a letter to prominent members of Congress announcing plans to extend the qualified mortgage patch—which exempts loans eligible for purchase by Fannie Mae and Freddie Mac (GSEs) from the Qualified Mortgage (QM) Rule’s 43 percent debt-to-income (DTI) ratio—for a short period beyond its current January 2021 expiration. As previously covered by a Buckley Special Alert, the Bureau issued an Advance Notice of Proposed Rulemaking last July to solicit feedback on, among other things, whether the DTI limit should be altered and how Regulation Z and the Ability to Repay/QM Rule should be amended to minimize disruption from the so-called GSE patch expiration. Kraninger notes in her letter that the Bureau plans to propose an amendment to the QM Rule to replace DTI ratios as a factor in mortgage underwriting with an alternative measure of credit risk. One alternative, Kraninger says, could be to use pricing thresholds based on the difference between the loan’s annual percentage rate and the average prime offer rate for a similar loan. The Bureau is also considering adding a “seasoning” approach through a separate rulemaking process to give safe harbor to certain loans when the borrower has made timely payments for a certain period, Kraninger states. Sources report that the Bureau plans to issue a Notice of Proposed Rulemaking no later than May.

    Agency Rule-Making & Guidance CFPB Ability To Repay Qualified Mortgage Mortgages Senate Banking Committee Fannie Mae Freddie Mac Regulation Z GSE

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  • Basis for invalidating CFPB is “remarkably weak,” says court-appointed defender


    On January 15, Paul Clement, the lawyer selected by the U.S. Supreme Court to defend the leadership structure of the CFPB, filed a brief in Seila Law LLC v. CFPB arguing that Seila Law’s constitutionality arguments are “remarkably weak” and that “a contested removal is the proper context to address a dispute over the President’s removal authority.” First, Clement stated that “there is no ‘removal clause’ in the Constitution,” and that because the “constitutional text is simply silent on the removal of executive officers” it does not mean there is a “promising basis for invalidating an Act of Congress.” Moreover, the Constitution leaves it to Congress to decide “all manner of questions about the organization and structure of executive-branch departments and officers,” Clement wrote. Second, Clement disagreed with the argument that Congress cannot impose modest restrictions on the President’s ability to remove executive officers, so long as the President is the one exercising the removal powers. Third, Clement noted that in the past, the Court has repeatedly upheld the ability to place permissible restrictions on a President’s removal authority.

    Clement further contended, among other things, that the dispute in Seila is “not just unripe, but entirely theoretical.” He referenced the Bureau’s brief filed last September (covered by InfoBytes here), in which the CFPB argued that the for-cause restriction on the President’s authority to remove the Bureau’s single director violates the Constitution’s separation of powers, and noted that “[w]hatever was true when this suit was first filed, the theory of the unitary executive appears alive and well in the Director’s office.” Rather, Clement stated, the Court should wait for an instance where a CFPB director has been fired for something short of the “inefficiency, neglect of duty, or malfeasance in office” threshold that Congress set for dismissing a CFPB director in Dodd-Frank before ruling on the question. Clement also emphasized that “text, first principles and precedent” all “strongly support” upholding the U.S. Court of Appeals for the Ninth Circuit’s decision from last May, which deemed the CFPB to be constitutionally structured and upheld a district court’s ruling enforcing Seila Law’s compliance with a 2017 civil investigative demand.

    As previously covered by InfoBytes, the 9th Circuit held that the for-cause removal restriction of the CFPB’s single director is constitutionally permissible based on existing Supreme Court precedent. The panel agreed with the conclusion reached by the U.S. Court of Appeals for the D.C. Circuit majority in the 2018 en banc decision in PHH v. CFPB (covered by a Buckley Special Alert) stating, “if an agency’s leadership is protected by a for-cause removal restriction, the President can arguably exert more effective control over the agency if it is headed by a single individual rather an a multi-member body.”

    The parties in Seila filed briefs last December. While both parties are in agreement on the CFPB’s single-director leadership structure, they differ on how the matter should be resolved. Seila Law argued that the Court should invalidate all of Title X of Dodd-Frank, whereas the Bureau contended that the for-cause removal provision should be severed from the rest of the law in accordance with Dodd-Frank’s express severability clause. Oral arguments are scheduled for March 3. (Previous InfoBytes coverage here.)

    Courts U.S. Supreme Court CFPB Single-Director Structure Seila Law Constitution

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  • CFPB denies petitioner’s request to postpone CID pending Seila decision

    Federal Issues

    On December 26, the CFPB denied a petition by a student loan relief company to modify or set aside a civil investigative demand (CID) issued by the Bureau last October. According to the company’s petition, the CID requested information as part of an investigation into the company’s promotion of student loan debt relief programs. As previously covered by InfoBytes, stipulated orders were entered against the company by the FTC and the Minnesota attorney general for violations of TILA and the assisting and facilitating provision of the Telemarketing Sales Rule, which resulted in the company being permanently banned from engaging in transactions involving debt relief products and services or making misrepresentations regarding financial products and services. In its petition, the company argued that the CFPB’s requests were duplicative of the FTC’s earlier investigation. The company also argued that the documents and materials sought in the CID were overly burdensome and the time frame to respond was too short. Furthermore, the company stated that until the U.S. Supreme Court issues a decision in Seila Law v. CFPB on whether the Bureau’s structure violates the Constitution’s separation of powers under Article II, the CID should either be withdrawn or stayed because of the uncertainty surrounding the Bureau’s ability to proceed with enforcement actions.

    The Bureau denied the petition, arguing that “the administrative CID petition process is not the proper forum for raising and deciding constitutional challenges to provisions of the Bureau’s statute.” The Bureau also noted that the company failed to show that it engaged with Bureau staff on ways to alleviate undue burden, such as proposing modifications to the substance of the requests, and that even though the Bureau proposed an extension to the CID deadline, the company did not seek such an extension.

    Federal Issues CFPB CIDs Single-Director Structure Enforcement Seila Law FTC State Attorney General TILA Telemarketing Sales Rule Debt Relief

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  • Senate Democrats ask IG to investigate CFPB restitution penalties

    Federal Issues

    On January 13, fifteen Democratic Senators, led by Senators Catherine Cortez Masto (D-NV) and Sherrod Brown (D-OH) sent a letter to the Inspector General of the Federal Reserve Board calling for an investigation into the CFPB’s restitution penalties levied against companies accused of wrongdoing. The Senators claim that the Bureau’s restitution approach “creates a perverse incentive for companies to violate the law by allowing them to retain all or nearly all of the funds they illegally obtain from consumers.” The letter asks the Inspector General to investigate four recent settlements to examine how the Bureau determines restitution awards and whether the applied standard for restitution differs from the standard applied by courts and in prior CFPB settlements.

    Included among the examples of actions for which consumers were provided limited to zero restitution is a recent settlement with a debt collector accused of engaging in improper debt collection tactics. As previously covered by InfoBytes, the company agreed to pay $36,878 in redress to harmed consumers, limiting the restitution to “only those consumers who affirmatively ‘complained about a false threat or misrepresentation’” by the company, the Senators wrote. Specifically, the Senators seek to determine the number of consumers who may have been excluded from the settlement because they did not affirmatively complain about the company’s behavior. A second example highlights an action taken against a group of payday lenders that allegedly, among other things, misrepresented to consumers an obligation to repay loan amounts that were voided because the loan violated state licensing or usury laws. (Previously covered by InfoBytes here.) According to the Senators, the settlement “dropped the requests for restitution and other relief for victimized consumers.” The letter also references a report released last October by the House Financial Services Committee (covered by InfoBytes here) following an investigation into these particular settlements, in which the Bureau responded “that it did not seek restitution in these cases because it could not determine ‘with certainty’ which consumers had been harmed or the amount of the harm.”

    Federal Issues CFPB U.S. Senate Enforcement Restitution

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  • CFPB and Utah AG to hold joint office hours in Salt Lake City

    Federal Issues

    On January 9, the CFPB and the Utah attorney general’s office announced that the first of the American Consumer Financial Innovation Network’s (ACFIN) joint office hours will be held in Salt Lake City, Utah on January 30. The CFPB’s announcement states that the office hours are intended to “provide innovators with the opportunity to discuss issues such as financial technology, innovative products or services, regulatory sandboxes, no action letters, and other matters related to financial innovation with officials from the CFPB and state partners.” As previously covered by InfoBytes, the CFPB, along with a number of state regulators, established ACFIN in September with the aim of reducing “regulatory burdens” and increasing “regulatory certainty for innovative financial products and services.” Members of ACFIN currently include state AGs from Alabama, Alaska, Arizona, Colorado, Georgia, Indiana, South Carolina, Tennessee, and Utah; and state financial regulators from Florida, Georgia, Missouri, and Tennessee. ACFIN membership is open to any state and federal partners interested in joining. 

    Federal Issues CFPB State Attorney General Consumer Finance ACFIN Fintech Regulatory Sandbox State Regulators

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